COVID-19 and Trump’s indifference helped human rights abusers in 2020
Belarusian government sees $2bn of withdrawals, issues $580mn worth of bonds in 2020
Lukashenko: I am no enemy of the people
Storming parliaments: New Europe's greatest hits
One of Russia’s biggest wood product companies, Segezha could be Sistema’s next IPO
The volume of the Russian National Wealth Fund tops $183.93bn as gold overtakes dollar asset for first time
EU to begin certifying Russian Sputnik V vaccine for use in Europe
New Ukrainian VC firm QPDigital aims to invest up to $100 million in digital startups
EBRD investments reach record €11bn in pandemic-struck 2020
FPRI BMB Ukraine: Most Ukrainians are optimistic about 2021 – poll
OUTLOOK 2021 Lithuania
EBRD says loan to Estonia’s controversial Porto Franco project was never disbursed
Estonian premier quits after Tallinn development scandal
Top Centre Party official suspected of corruption in Tallinn real estate scandal
Czech Pirates and Mayors approve final coalition agreement for 2021 elections
OUTLOOK 2021 Czechia
BRICKS & MORTAR: Rosier future beckons for CEE retailers after year of change and disruption
Romanian tech entrepreneurs expand into banking sector
OUTLOOK 2021 Hungary
Hungarian government remains silent after Capitol riots
World Bank expects modest recovery for Europe and Central Asia in 2021
FDI inflows to CEE down 58% in 1H20 but rebound expected
OUTLOOK 2021 Slovakia
Slovakia to invest €1.2bn in digitisation
BALKAN BLOG: The controversial recipe for building up Albania
Heavy flooding causes chaos in parts of Southeast Europe
Vodafone Albania plans €100mn infrastructure investments after AbCom merger
OUTLOOK 2021 Albania
Kyiv accuses Bosnian President Dodik of lying about icon gifted to Russian foreign minister
Bosnia’s real GDP contracts 6.3% y/y in 3Q20
Sofia-based LAUNCHub Ventures holds first close of new fund on €44mn
ING THINK: Growth in the Balkans: from zero to hero again?
OUTLOOK 2020 Bulgaria
Labour demand down 28% y/y in Croatia in 2020
Zagreb Stock Exchange's Crobex10 index at highest level since March 5
OUTLOOK 2021 Kosovo
Arrera Automobili aims to launch Albania’s first supercar
World Bank revises projection for Moldova’s 2020 GDP decline to 7.2%
Moldova’s PM resigns to prepare the ground for early elections
Socialist lawmakers in Moldova scrap settlement on $1bn bank frauds
Montenegro’s new ruling coalition carves up top state jobs
OUTLOOK 2021 Montenegro
Vast tide of floating waste threatens Balkan hydropower plants
North Macedonia's manufacturing confidence indicator down by 8.5 pp y/y in December
OUTLOOK 2021 North Macedonia
Transparency International warns of high corruption risk in CEE defence sectors
Moldova fears flooding from Ukraine's planned Dniester hydropower plants
Romania’s industrial recovery paused in November
OUTLOOK 2021 Serbia
Slovenia’s opposition files no-confidence motion against Jansa cabinet
UK Moneyhub picks Slovenia for post-Brexit European base
Slovenia’s dire COVID-19 situation in 4Q20 caused second economic dip
Slovenia’s Eligma completes €4mn funding round
Turkish opposition leader lawsuit demands one lira from Erdogan, police probe “bald” interior minister posts
Akbank takes over Istanbul's Palladium Atasehir shopping mall
OUTLOOK 2021 Armenia
Armenia’s PM cautions conflict with Azerbaijan “still not settled” after trilateral meeting with Putin
COMMENT: Record high debt levels will slow post-coronavirus recovery, threaten some countries' financial stability, says IIF
Russia, Kazakhstan pushing for oil production increases on the back of coronavirus vaccine-fuelled oil price optimism
OUTLOOK 2021 Georgia
Georgia’s political kingpin Bidzina Ivanishvili quits politics
Modern-day “Robin Hood” inspires Georgians drowning in debt
Iran’s navy conducts missile drill while analyst argues Trump even capable of nuclear strike in final days
TEHRAN BLOG: Who’s more credible? Johnson backing Trump’s Nobel chances or Iran applauding arrest warrant for US president?
STOLYPIN: Scope for limited progress under Biden, so long as the past remains the past
Central Asia vaccination plans underwhelm, but governments look unruffled
Fears of authoritarianism as Kyrgyz populist wins landslide and backing for ‘Khanstitution’
OUTLOOK 2021 Kyrgyzstan
Mongolia's winter dzud set to be one of most extreme on record says Red Cross
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
Mongolia fears economic damage as country faces up to its first local transmissions of coronavirus
Mongolia in lockdown after suffering first local coronavirus transmissions
OUTLOOK 2021 Tajikistan
China business briefing: Not happy with Kyrgyzstan
OUTLOOK 2021 Turkmenistan
Turkmenistan: How the Grinch stole New Year
Turkmenistan: The dammed united
COMMENT: Uzbekistan is being transformed, but where are the democratic reforms?
OUTLOOK 2021 Uzbekistan
Uzbekistan’s Makro positions itself for growth in a more competitive market
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The global economic recovery continued throughout the quarter, and the OECD now expects world GDP for 2020 to contract by only 4.5%, compared with 6% in their previous forecast from June.
The key reason for the improvement is the unprecedented stimulus, both fiscal and monetary, that has supported household incomes and kept companies alive.
Global indices gained broadly during Q3, with MSCI Emerging Markets up 9.6%, MSCI Frontier Markets 8.3% and MSCI World 7.9%. Their year-to-date figures now show surprisingly few signs of the recent turmoil, and MSCI World is up 1.7%, while MSCI Emerging Markets is down only 1.2%. MSCI Frontier Markets lags however, down 8.8%.
Headline figures rarely give the full picture, though, and going into the details and reading the management reports of our strategies over the quarter reveals interesting diverging trends.
On the economic and stock market front, what stands out is China. Already during Q2, when most countries saw their GDPs contract at a record pace, China posted a 3.2% gain and was the only G20 country showing growth. Since then, numbers have continued to improve, with strong real estate and auto sales as examples, with China successfully controlling the pandemic and managing to restart its economy.
Its success in shifting the economy from a mainly export-driven to a domestic consumption and investment-driven model, with important implications for the country’s ability to deal with the US’ harsher stance on trade and technology, is a recipe for its resilience towards weaker global demand.
For the rest of emerging markets, and especially those outside Asia, the impact has been harder and the recovery weaker. Many countries in Africa and Latin America will likely need longer to return to pre-coronavirus (COVID-19) levels, partly as they have not had the full ability to use fiscal stimuli due to weaker public balance sheets.
South Africa, for example, is anticipated to contract by 11.5% this year and grow by only 1.5% next year. Also under pressure is Turkey. The weak global environment, combined with geopolitical conflicts and policy errors, has put Turkey’s FX in a downward trend which creates a significant risk for inflation running out of control.
In Europe, the frontier and emerging countries of the region have not been able to escape the dire environment, but in Eastern Europe we anticipate a much faster recovery than in Western Europe. Many of these countries have far less public debt and remain an important part of the EU supply chains, with both affordable and skilled labour and a productive manufacturing sector thanks to huge past investments. This makes them well positioned for the nearshoring we expect to happen when global trade picks up. They are also expected to see a steady inflow of both EU recovery and cohesion funds, equivalent to up to 35% of GDP in some countries, which will allow for structural growth for years to come.
Looking at equity markets, it is clear that growth stocks have massively outperformed value stocks, and tech-related, including “digital leaders”, have outperformed traditional sectors and companies. This is equally true for both emerging markets and developed markets.
Among the regions we invest in, Asian countries with strong footprints in the technological sector rank among the best markets this year. Central European and Balkan countries on the other hand, with more traditional and banking-heavy sector compositions, have unsurprisingly shown much weaker returns.
It is important, however, to note that their lagging returns do not necessarily reflect deteriorating trends in underlying fundamentals, just a low investor appetite for value stocks. We expect the latter to change once the pandemic is under control, which should hopefully happen next year. The outlook for these equity markets therefore remains attractive.
When it comes to emerging market tech stocks, these followed the global trend. Chinese e-commerce giant Alibaba gained 36% during the quarter, while leading Russian tech company Yandex was up 30%. The latter also announced that it was in talks to acquire online bank Tinkoff, up 31% during the period, paving the way for an entry into fintech. In Poland, we saw the record-breaking IPO of Allegro, a “local Amazon” with 36% domestic market share, which attracted massive demand and a post-market valuation of $11bn.
When it comes to geopolitics, uncertainty remains high. Relations between the US and China have not improved, and both had a consulate of the other country closed.
In Eastern Europe, the poisoning of Russian opposition leader Alexei Navalny resulted in the EU hardening its stance on the country. We also saw a dubious presidential election in Belarus, which led to massive and still ongoing protests in the country, as well as a flare-up of violence between Armenia and Azerbaijan in the disputed area of Nagorno-Karabakh; two events that raised fears of Russian involvement.
While all this is a clear negative for sentiment, the impact on markets is likely limited, as we expect any sanctions stemming from these to be aimed at individuals rather than the financial systems or corporates.
Finally, we have the US election coming up in November. There, at this stage, the key worry is on the electoral process rather than the outcome, and any narrow result risks being contested. In terms of election outcome, a Biden win will likely help risk premiums come down and act as a support for global markets, while a Trump win might be the preferred choice for the US domestic economy, thanks to his more lenient policies on tax and regulation.
Looking ahead, a stronger-than-expected recovery has supported sentiment and markets, but the pace of improvement has slowed, and uncertainty on the future recovery has increased. In the US, a lack of new stimulus, combined with a potentially turbulent election process, poses a key risk, and tensions with China are likely to endure.
In the EU, a rising number of COVID-19 cases has dented sentiment, and leading indicators now imply a contraction in the service sector. Despite this, we see a limited risk of a broad correction thanks to all the measures taken by governments and central banks throughout the year, as well as better knowledge on the virus. The abundance of liquidity also remains in place, as does the demand for risky assets supported by low rates and a “hunt for yield”.
Finally, we find that a continued high valuation discrepancy between growth and value stocks offers good opportunities for stock selection, especially within emerging and frontier markets.
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